Acquisitions: Buying and selling going concerns: Growing by purchase can bring triumph or trauma. A guide offers tips on avoiding the pitfalls and knowing when to bow out

IN THE late 1970s, Michael Ullmann - fresh out of the prestigious Insead business school - and a partner decided that their contribution to the world would be a frozen, pre- cooked hamburger that could be heated up in a microwave oven. Hunky Products - formed for the purpose of marketing the Hunky Hamburger - opened for business in London's Kings Cross in 1979.

In Mr Ullmann's words, the idea was not a great success, and two years later the pair decided to go for vertical integration. In an attempt to improve quality, they bought a bun maker called Kara Foods from Bejam, the frozen food company, for pounds 550,000.

By Mr Ullmann's own admission, they made several mistakes over the purchase. They did not obtain any warranties about sales - and lost former Bejam customers; they paid too much for goodwill, rather than assets; and they got the financial structure wrong by borrowing all the money - for which Mr Ullmann had given personal guarantees totalling pounds 275,000.

'Struggling and under pressure', they decided the best strategy was to try to become a market leader through making another acquisition - Warburton's Fast Foods. This time the deal was better financed and - with the benefit of some experience in the business - they were soon able to turn around a loss-making operation. But not content with being market leader, they again followed business school logic by seeking to be the lowest-cost producer.

Heavy investment in a new factory led to disaster, when it failed to operate properly. Having lost a lot of money, they were unsure whether to seek a listing or make another acquisition. The possibility they had not considered was a sale. But that is what suddenly happened, as Mr Ullmann relates in a new guide to buying and selling private companies.

Now chairman of Giles Foods, he describes the episode as 'traumatic' and the most stressful business situation in which he has been involved.

The belief that many people have had experiences like this led the Institute of Directors and Smith & Williamson, the firm of chartered accountants that also acts as a private bank and fund manager, to produce Buying and Selling Private Companies (published by The Director Publications at pounds 9.95).

Ian Buckley, chief executive of Smith & Williamson, said: 'It is a subject about which surprisingly little is written. The guide provides practical advice on the subject, and readers will find particularly useful the experiences of business owners and managing directors who have bought and sold companies in recent years.'

The book is divided into three sections: how to buy a company, the technical issues involved, and how to sell. Lawyers, venture capitalists and other specialists guide readers through the details of such transactions in an effort to promote more triumphs than traumas, while case studies such as Mr Ullmann's provide an insight into what can happen.

One of the most important things he learned from the experience is how difficult it can be to let go of a business that you have built up. 'One of the lessons is to recognise when it's time to go,' he said.

But he adds in the guide that the deal taught him that he is very much driven by opportunity. 'People ring me up, I call them back - and before you know it, a deal is done. I think that is a very common trait in entrepreneurs - it's the way a lot of us operate. But it is not necessarily the best way of achieving the best price.'

Recognising that the worst way is probably to be forced to sell through circumstances, he adds that the best approach is to plan for a sale.

'You can plan many years in advance if you know the limit of your ambitions for the business - or you can plan hurriedly at the last minute. Either way, a degree of forethought will help towards a successful outcome.'